TIDMSCHE
RNS Number : 9912O
Southern Cross Healthcare Grp PLC
27 September 2011
27 September 2011
Southern Cross Healthcare Group PLC
("Southern Cross", "the Company" or "the Group")
Announcement of Final Form of Restructuring
- Implementation of Restructuring Underway -
The Board of Southern Cross announces that it has reached
agreement with its principal landlords and lenders on the final
form of the restructuring of the Group (the "Restructuring") and
that the process of transferring its homes to new operators is now
being initiated on a basis which provides for the continuity of
care for residents. The Restructuring, which is described below,
involves the assignment of the Group's operating leases of care
homes to its landlords and the transfer of the related business and
assets for the care operations of those homes (including back
office support) to its landlords or alternative care providers.
Such arrangements are intended to facilitate an orderly
wind-down of the Group's operations on a basis which ensures
continuity of care at the home level is maintained. The
Restructuring relies on the continuing support of the Group's
landlords and lenders.
The United Kingdom Listing Authority (the "UKLA") has granted a
waiver pursuant to Listing Rule 10.8 in respect of the requirement
to prepare a circular and obtain shareholder approval for the
Restructuring, available only to companies in severe financial
difficulty. In connection with that waiver, the Board confirms, as
it has confirmed to the UKLA, that in respect of the
Restructuring:
-- This was the only form of restructuring to which its
landlords would agree;
-- It has not been possible to make the Restructuring
conditional upon shareholder approval;
-- All alternative methods of financing its immediate working
capital needs have been exhausted and the only solvent option
remaining to the Company is to implement the Restructuring; and
-- By taking the decision to implement the Restructuring, the
Directors believe that they are acting in the best interests of the
Company.
In the event that the Restructuring cannot be progressed, the
loss of support of creditors would mean the Company and a number of
its subsidiaries will be unable to continue to trade resulting in
the appointment of receivers, liquidators or administrators.
Background and current position
As highlighted in the Company's interim results for the six
months ended 31 March 2011 which were published on 19 May 2011, the
Company has been facing serious financial challenges for some
time.
The Group's financial situation is such that it is unable to
meet its full rental obligations to the landlords from whom it
leases the care homes that it operates and, currently, is only able
to continue its operations as a result of the continued temporary
deferral of rental obligations from its landlords and the continued
temporary provision of credit lines from its lenders, Barclays Bank
PLC and Lloyds TSB Bank PLC (the "Lenders").
As previously announced on 14 March 2011, the Board has been in
discussions with its advisers, its landlords and the Lenders
regarding options for a restructuring of the Group. On 23 September
2011, landlords representing over 80% (by number) of the Group's
homes confirmed that they would not agree to their acquisitions
from the Group being conditional upon receipt of shareholder
approval. The Lenders' continued support is conditional on the
landlords' support of the Group, which is in turn conditional on
the grant of an exemption pursuant to Listing Rule 10.8 in respect
of the Restructuring.
Without the landlords' and the Lenders' continued support it
would not be possible to implement the Restructuring. In the event
that the Restructuring cannot be progressed, the loss of support of
creditors will mean the Company and a number of its subsidiaries
will be unable to continue to trade resulting in the appointment of
receivers, liquidators or administrators. In such circumstances,
there would be no value left for distribution to the Company's
shareholders.
The Restructuring
The Board has been advised that in light of the serious
financial position of the Company, it should have primary regard to
the interests of creditors. Two courses of actions were identified
by the Board: (i) to implement an appropriate insolvency procedure;
or (ii) to attempt a restructuring of the Group on terms agreeable
to major creditors. Under both courses there would be no value left
for distribution to the Company's shareholders. The Board has
concluded that the Restructuring of the Group is clearly the
preferable route as it will ensure maintenance of continuity of
care for residents.
The Restructuring, which is driven by a restructuring agreement
between the Company, its Lenders and landlords which will become
effective on its execution by landlords in respect of 75% (by
number) of the Group's care homes, may be summarised as
follows:
-- The Group's operating leases will be assigned to its
landlords and the related business for the care operations of those
leased homes together with the employees working in those homes,
will be transferred or "transitioned" to its landlords or their
chosen alternative care providers.
-- In order to ensure that continuity of care is maintained, the
Group will transfer to HC-One, a company formed for the purpose of
operating care homes owned by NHP, that part of its operations
which provide "back office" support and HC-One/NHP will continue to
provide such support to some landlords and alternative care
providers for a period of time following completion of the transfer
of homes. The Lenders require all parties to have signed
documentation relating to these arrangements prior to the Lenders
entering into the restructuring agreement.
-- In return for the orderly transition of homes and the
Lenders' support, landlords will continue to provide additional
working capital support to the Group by forbearing from exercising
their existing rights against the Group, and by providing a full
deferral of the rent due to them during September 2011.
-- The Lenders will continue to make the Group's revolving
credit facility available during the transition period.
-- The 11 leasehold properties identified by the Group as having
a material positive realisable assignment value (which are the
subject of security in favour of the Lenders) will be sold to new
operators in return for a payment of GBP1,025,000, of which
GBP1,000,000 will flow to one of the Lenders, Barclays Bank PLC.
Conditional agreements in respect of 8 of these homes have been
entered into already, resulting in a payment of GBP925,000 to
Barclays Bank PLC.
-- The Group's 19 freehold properties, which are subject to
fixed charge security, will be sold to third parties.
-- The Board hopes to have completed the disposals by early
November 2011, and in any event expects that all such disposals
will have been completed by the end of 2011.
-- There will be an orderly wind down of the Group's residual
operations.
-- Following completion of the disposals and expiry of the
transition period the Board is intending to put the Company into a
solvent liquidation.
HC-One's obligations under its Business Purchase Agreement with
the Company are conditional on NHP receiving the consent of Capita
Asset Services (UK) Limited ("Capita") in its capacity as servicer
and special servicer in respect of NHP's senior GBP1,172,000,000
debt facility (the "NHP Facility"). The care homes the subject of
that agreement represent approximately 33% (by number) of the care
homes operated by the Southern Cross Group. Capita and its advisers
have been fully involved in the negotiation of the Restructuring.
Capita has confirmed to the Company, (i) that it is strongly
supportive of the agreed basis for NHP's participation in the
Restructuring and believes that to be in the best interests of its
stakeholders, being the lenders under the NHP Facility, (ii) it
considers the entering into and implementation of NHP's
participation in the Restructuring to be in accordance with the
servicing standard to which Capita must adhere and (iii) assuming
that the transition of the NHP-owned homes remains in compliance
with the servicing standard Capita's Special Servicing Committee
will be convened to agree on final consent to NHP's participation
in the Restructuring promptly following, (a) finalising the
documentation with NHP's operator, the commercial terms of which
are substantially agreed and which is expected to be finalised on
or about 30 September, and (b) the release of this
announcement.
The Company has been informed that the obligations of London
& Regional, Citrus, Loyd and PHF with respect to their Business
Purchase Agreements are subject, in each case, to consent from
institutions which are providers of debt finance to them. Taken
together the care homes subject to these Business Purchase
Agreements represent approximately 27% (by number) of the care
homes operated by the Southern Cross Group. London & Regional
has confirmed that all of its lenders have been fully involved in
the negotiations of the Restructuring and that it has been advised
to enter into their Business Purchase Agreement and the
Restructuring Agreement. London & Regional expect to receive
consent from their lenders not later than 30 September 2011. Citrus
has confirmed to the Company that it expects to receive the
required consent of its lenders within seven days of the release of
this announcement. Loyd has confirmed to the Company, (i) that four
of its seven lenders have given consent to its entering into its
Business Purchase Agreement and that Grant Thornton has advised
that Loyd should enter into its Business Purchase Agreement, and
(ii) that it expects to receive the required consent from the final
three of its seven lenders within seven days of the release of this
announcement.
Other landlords will also need to address lender or other
consent issues before their respective participations in the
Restructuring become unconditionally effective.
The Board anticipates that following implementation of the
Restructuring, the proceeds of the disposals of the freehold
properties that it owns, which are anticipated to occur as part of
the Restructuring, are likely to be materially less than the
indebtedness owed to the Group's landlords and the Lenders and that
after the sale and transfer of assets for value, there will remain
a material shortfall owing to the Group's landlords, the Lenders
and HM Revenue & Customs ("HMRC"). The Restructuring Agreement
makes provision for landlords and the Lenders to support certain
compromise arrangements to address that material shortfall. It is
planned that these compromise arrangements will result in the
satisfaction by way of compromise of all such residual liabilities
to creditors and the Board does not expect that there will be any
value left for distribution to the Company's shareholders.
The Directors are of the opinion that the working capital
available to the Company is not sufficient for the Group's present
requirements. The Restructuring has been structured with the
support of landlords and Lenders with the intention of enabling the
orderly handover of homes and the wind-down of business operations
during the anticipated transition period. The continued support of
the Lenders, the Group's landlords and HMRC and the performance of
the legal agreements underpinning the Restructuring will be
critical to achieving those objectives.
The Company's sponsor, Morgan Stanley & Co, Limited ("Morgan
Stanley"), has confirmed to the Company and to the UKLA that, in
its opinion and on the basis of the information available to Morgan
Stanley (i) the Company is in severe financial difficulty and (ii)
if the Restructuring, which the Board has concluded is clearly the
preferable route to ensure maintenance of continuity of care for
residents, cannot be progressed, the loss of support of creditors
will mean the Company and a number of its subsidiaries will be
unable to continue to trade resulting in the appointment of
receivers, liquidators or administrators. In any event, following
completion of the disposals and expiry of the transition period as
outlined above, the board is intending to put the Company into a
solvent liquidation in due course.
The Directors believe that the Restructuring is in the best
interests of the Company.
Board membership
The Company has recently announced that Jamie Buchan, its chief
executive, and David Smith, its finance director, will be standing
down from Board membership later in the restructuring process.
With the terms of the Restructuring now finalised and its
implementation underway Christopher Fisher, who stepped up to
become chairman in April of this year, has decided it would now be
appropriate for him to step down from the Board with effect from 30
September, the planned date for the first wave of home
transfers.
Christopher Fisher, the Chairman of Southern Cross,
commented:
"The Board would like to pay tribute to all our staff and
managers who have sustained our business through the difficult
times which we have experienced this year, and for the care they
are continuing to provide to residents through this final phase of
transition.
"The Board has also appreciated the support of its creditors,
which has enabled us to maintain continuity of care for our
residents and, under the Restructuring now agreed, should provide a
stable framework for the transition of our homes and thereafter an
orderly wind down of the Company's affairs. The understanding of
our residents and their relatives through a period of uncertainty
should also be recognised.
"The demise of Southern Cross is a matter of considerable
regret. It has involved the loss of all shareholder value as well
as a loss of value for our principal creditors, and will entail a
number of job losses for our central staff. Nevertheless, in
relation to the challenges we have faced this year the final
outcome now in prospect represents a considerable achievement, and
I would like to thank all those who have worked so hard to that
end."
END
For further information, please contact:
Southern Cross Healthcare Group
PLC +44 (0)1325 351100
Amy Kroviak, Corporate Communications
FTI Consulting +44 (0)20 7831 3113
John Waples / Ben Brewerton
/ Susan Quigley
This announcement has been issued by, and is the sole
responsibility of, the Company.
Morgan Stanley is acting for the Company as a sponsor in
connection with Listing Rule 10.8 and for no one else in connection
with the Restructuring and will not be responsible to anyone other
than the Company for providing the protections afforded to
customers of Morgan Stanley or for affording advice in relation to
the Restructuring, the contents of this announcement or any
transaction, arrangement or other matter referred to in this
announcement. Apart from the responsibilities and liabilities, if
any, that may be imposed on Morgan Stanley by the Listing Rules,
Morgan Stanley does not accept any responsibility whatsoever and
makes no representation or warranty, express or implied, for the
contents of this announcement, including its accuracy, completeness
or verification or for any other statement made or purported to be
made by the Company, or on the Company's behalf, or by Morgan
Stanley, or on Morgan Stanley's behalf, in connection with the
Company or the Restructuring, and nothing in this announcement is
or shall be relied upon as a promise or representation in this
respect, whether as to the past or future. Morgan Stanley
accordingly disclaims to the fullest extent permitted by law and
under the Listing Rules all and any responsibility and liability,
whether arising in tort, contract or otherwise, which it might
otherwise have in respect of this announcement and any such
statement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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